BUSINESS PLANNING AND

FUNCTIONAL STRATEGIES
 WHY BUSINESS PLAN

• Next one year plan as part of strategic plan

• Coordinating the activities of functions in achieving the strategic goals for the year
• Case for new financing
• Gaining approval of board for new projects
• Winning new contracts
• Part of annual budget
 THE PLANNING PROCESS
• Creation
• The company’s mission
• Shareholder analysis
• SWOT

• Implementation
• Setting SMART objectives
• Deciding on a strategy

• Review
• Is the plan consistent? Does it fit with the position analysis that you have done
• Is the plan sufficient? Does it meet with your objectives previously set
• Is the plan feasible? Do you have the resources

• Critical Success Factors:

• Identify Critical Success Factors for the organization
 TYPICAL CONTENT OF BUSINESS PLAN

• Executive summary
• Business strategy
• Strengths, weaknesses, opportunities and threats analysis (SWOT)
• Marketing planning
• Operational planning
• Purchasing
• Human resources plan
• Research and development planning
• Social responsibility strategy
• E-business strategy
• Financial forecasts and other information
 EXECUTIVE SUMMARY

• The executive summary is an overview of the key points contained in your business plan and is
often considered the most important section. It is usually the first section that a potential investor
or lender will read, and may be the only section to be read if it is not prepared properly. This
important summary should:
• Include highlights from each of the other sections to explain the basics of your business
• Be sufficiently interesting to motivate the reader to continue reading the rest of your business plan
• Be short and concise — no more than two pages long

• You will want to describe your business concept, competitive advantage, legal structure (e.g. sole
proprietorship, corporation), the market, and your own experience.
• Although the executive summary is the first section of the plan, you should write it last.
 BUSINESS STRATEGY
• This section should briefly but clearly describe what your business is all about. This segment should include
the following elements.
• Introduction
• This section should give readers a very brief overview of your business — where you've been, where you are
now, and where you're going in the future. It should include:
• A short history of your business — is it a new business venture, are you purchasing an existing business, or are you
expanding an existing business?
• The purpose of your business — discuss your vision and the main objectives of your business
• A description of your products and services — what will you offer?
• The legal structure of your business — are you a sole proprietorship, a partnership, a corporation, or a cooperative?

• Current Position
• Your current position — what stage of the business lifecycle is your organization in?
• Your industry — is it growing, stable, or contracting?
• Your achievements — what have you achieved so far?
 BUSINESS STRATEGY

• Competitive Advantage
• Your competitive advantage — what is your advantage over the competition (e.g. innovative
products, strong business model, appeal to niche markets)?
• Your competitors — who are they and what are their strengths and weaknesses?
• Your business model — why is it effective?
• Growth Plan
• Growth timeline — where do you see your business in a year from now? 3 to 5 years down the
road?
• Milestones — what objectives have you set for your business and when do you expect to achieve
them?
• Goals — what are your short-term (the upcoming year) and long-term (the next 3-5 years) goals?
 SWOT ANALYSIS
• Conducting a SWOT analysis is an important part of business planning. A properly prepared SWOT analysis shows
investors that you have realistically and objectively considered these elements.
• Banks and other lenders understand that businesses will encounter difficulties at some point, and want to know how
you will deal with these challenges. Remember that overestimating strengths and opportunities or ignoring potential
problems will undermine your credibility.
• Putting time and effort into conducting a comprehensive SWOT analysis can help you:
• Make sound decisions and future plans
• Anticipate problems and make the necessary changes
• Set aside resources to take advantage of potential opportunities

• Identify opportunities arising from your current business

Are you sitting on a golden opportunity for growth? Your current operations may be more
fruitful than you think.
• Assessing the health of your business
A periodic business health assessment should be a staple of your ongoing business planning cycle.
 MARKETING PLANNING
• Describe the activities you will use to promote and sell your product or service. You should touch on each of
the “7 Ps" of the marketing mix:
• Product — how does your product or service meet the needs of your target market?
• Price — how much will you charge for your product or service and why?
• Place — how are you going to get your product to your customers?
• Promotion — how will you connect with your target market?
• People – the personnel the customer needs
• Physical – the look and feel of the business premises, publicity etc
• Process – the way the clients make a purchase or the way the client is dealt with

• You may also want to include a profile of your "ideal customers". You can create profiles based on customer
type
• consumers, retailers, or wholesalers
• or base your segments on demographic information such as age, location, and income level.

• Keep in mind that solid market research is the backbone of an effective marketing strategy.
• You will want to back up your statements with facts
• Explain how you reached your conclusions and include statistics from reliable sources.
 MARKETING PLANNING
• A typical marketing plan will have the following elements:
• Executive Summary
• Situation Analysis (SWOT)
• Objectives and goals
• Marketing strategy – target market, marketing mix and marketing expenditure
• Strategic Marketing Plan
• 3 to 5 years
• Scope of product and marketing activities
• Match activities with its distinctive competencies
• Tactical Marketing Plan
• One year
• Existing product and services
• Marketing mix issues
• Action Plan
• How to achieve strategies
• Cover 7Ps
• Mix strategy
• Budgets
• Controls to monitor progress
 OPERATIONAL PLANNING

Operations strategy should include the following:

• Capability required – what does the organization want to “do” or produce?
• Range and location of operations – scale of operations with an eye to future
• Investment in technology
• Strategic buyer-supplier relationship
• New products/services – expected life cycles
• Structure of operations – how will staff be organized and managed
 OPERATIONAL PLANNING
The four Vs
High Low

Volume • Capital intensive • Each member does more than one task
• Specialization and well established system • Less systemization and higher cost of output

Variety • Flexible and adapting to individual customer needs • Standardized

• High unit costs • Low unit costs

Variation in demand • Capacity utilization issues • High capacity utilization

• High unit costs • Low unit costs

Visibility of services • Need for staff with good communication and • Time lag between production and consumption
interpersonal skills allowing higher capacity utilization
• More staff needed and more expensive • Some operations may be visible and some less visible
• Customer satisfaction is key – front office and back office
• High unit costs • Lower unit cost
 OPERATIONAL PLANNING

• Capacity planning
• Level capacity plan – constant level over planning period. In a situation where demand is lower than
capacity, the operation will produce goods for inventory. In a service situation such as hospital,
restaurant or supermarket, there will be under utilization to ensure adequate service during peak time.
Sometimes queues may form
• Chase demand plan – match capacity with demand. This will need flexible resources with staff
working overtime and short term rentals
• Demand management planning – reduce peak demand by switching to off peak periods by offering off-
peak price
• Mixed plans- mixture of the three approaches

• Capacity control
• MRP 1 – material planning using demand estimates
• MRP II – manufacturing, marketing, finance and engineering
• ERP – integration of all functions of business
 OPERATIONAL PLANNING
Just in Time: Three key elements
• Elimination of waste – overproduction, waiting time, internal transport, waste, inventory, simplification of
work, defective goods
• Involvement of all staff – JIT is a cultural issue
• Continuous improvement – “kaizen” – perfect solution is not possible; efforts should be made towards
reaching this ideal solution
JIT Purchasing – tie up with preferred suppliers e.g. Toyota

Total Quality Management:

• Internal customers and external suppliers- all have to work together including service to internal customers
• Service level agreements- between internal customers
• Quality culture within the firm – quality is everyone’s responsibility
• Empowerment – employees will give suggestions to improve quality
 PURCHASING
• Importance – cost, quality and strategy
• Purchasing mix – quantity, quality, price and delivery
• Sourcing strategies:
• Single :
• Advantages:
• Stronger relationship
• Better quality control
• Better communication
• Economies of scale
• Confidentiality
• Possible source of competitive advantage
• Vendor managed inventory
• Disadvantages:
• Vulnerable to disruption of supplies
• Supplier power may increase
• Vulnerable to shifts in order levels
 PURCHASING
• Multiple suppliers:
• Advantages:
• Wider range of expertise and knowledge
• Lower price due to competition
• Less vulnerable to supplies
• Disadvantages
• Difficult to introduce quality assurance programme
• Less commitment
• Less economies of scale

• Delegated: Supplier is given responsibility for a complete sub assembly (e.g. PC keyboard)
• Advantages:
• Utilization of specialist external expertise
• Frees up internal staff for other tasks
• Negotiate economies of scale
• Disadvantages:
• First tier supplier is in a powerful position
• Competitors may use the same external organization not allowing competitive advantage
 PURCHASING
• Strategic Procurement
• Traditional procurement slows down fulfilment of order, poor communication, higher cost of inventory and higher transaction cost
• Strategic procurement is:
• True partnership between company and supplier of strategic value
• Long term, single source and cover buying of parts, products, services, product design and supplier capacity.

• Suppliers and e-procurement

• Leads to major cost savings
• Advantages to buyer:
• Cost savings
• Faster purchasing cycle
• Reduction in inventory
• Reduces off contract buying
• On line catalogues
• Controls costs by imposing limits on levels of expenditure
• Advantages to supplier:
• Faster order acquisition
• Immediate payment system
• Lower operating costs
• “Lock in” of buyers to the market
• Automate manufacturing demands
 HUMAN RESOURCES PLAN
• This section addresses how you plan to manage your employees and human resources processes.
• You should also discuss your short-term and long-term plans for employee recruitment, training, and retention.
• Goals of Strategic HRM:
• Serve the interests of management as opposed to employees
• Strategic approach to personnel issues
• Link business mission to HR strategies
• Human resource to add value
• Gain employee commitment to the organizations goals and objectives

• You may want to include:

• A brief organizational layout or chart of the business
• Who does what, with a brief job description of each position
• The essential skills required for each position
• Information on your employee training program
• Any other relevant information related to personnel (e.g. gaps in your team, training budget)
 HUMAN RESOURCES PLAN
• The HR plan
• Recruitment plan
• Training plan
• Development plan
• Productivity plan
• Redundancy plan
• Retention plan

• Succession planning is a critical part of HR planning

• Benefits:
• Development of managers at all levels
• Continuity of leadership with less dislocation
• Assessment of managerial talent
• Features of successful succession planning
• Focus on future requirements
• Driven by top management with inputs from line management
• Management development is as important as selection and assessment
• Objective assessment with more than one assessor
• Identify leaders as opposed to creating a queue for top positions
 HUMAN RESOURCES PLAN

HR cycle:
• Selection – right people with the qualities and skills
• Appraisal – achievement against business objectives, identify skills and performance gaps, and
provide information relevant to reward levels
• Training and development – ensure skills remain upto date, relevant and comparable to the industry
• Performance and reward system – to motivate and ensure valued staff are retained
 RESEARCH AND DEVELOPMENT PLANNING
• Product and process research:
• New product research – new products are a lifeline but at high cost. Need to concentrate on products
with a high probability of success
• Process research – how goods/services are produced
• Processes are crucial in service industries (eg fast food) as part of the services sold
• Productivity: Efficient processes save time and money
• Planning: the most effective sequence
• Quality management
• R&D should be closely coordinated with marketing
• Customer needs as identified by marketers
• Possible change in product specifications so that a variety of marketing mix can be tried
• Strategic role of R&D:
• Product innovation could be a source of differentiation and cost leadership
• Assists in new market and new product development
• Identification of new product is essential in product life cycle
 SOCIAL RESPONSIBILITY STRATEGY
• Implementing good environmental and social practices is good business — it can give you a
competitive advantage and help foster goodwill toward your business.
• In this section you should discuss ways in which your business honours ethical values and
respects people, your community, and the environment.
• You may want to include information about:
• Your environmental policies and initiatives
• Your business' contributions to your community
• Relevant certifications such as fair-trade certification, organic certification, or Leadership in Energy
and Environmental Design (LEED) certification
• Corporate social responsibility
In order to stay competitive in today's market, you might want to consider where corporate social
responsibility fits into your operations.
• Environment and business
Find environmental programs and resources that could help improve your business.
 E-BUSINESS STRATEGY

• Effectively using information technology is an important part of managing a business. In this

section, you should outline how you plan to use internet technologies to reach customers,
manage your business, and reduce costs. You should include information about:
• E-commerce activities (selling your product or service online)
• Website development
• Hardware and software requirements
• Relationships with external information technology specialists

• Keep in mind that implementing e-business strategies can save money — if this is the case for
you, you may want to highlight potential savings in this section.
• Using technology in your daily operations
Discover some of the many ways you can use information communications technologies to your
advantage.
FINANCIAL FORECASTS AND OTHER INFORMATION

• This section of your business plan essentially turns your plans into numbers. As part of any business plan, you
will need to provide financial projections for your business.
• Your forecasts should run for the next 3 to 5 years. However, the first 12 months' forecasts should have the most
detail, including assumptions both in terms of costs and revenues, so investors can clearly see the thinking
behind your numbers.
• As you put your plans down on paper, remember the importance of thinking objectively. Analyzing your venture
from three points of view — optimistic, pessimistic, and realistic — can give you a solid idea of what to expect
as you move forward.
• Your financial forecasts should include:
• Cash flow statements — this is a cash balance and monthly cash flow pattern for the first 12-18 months. Include
working capital, salaries and sales.
• Profit and loss forecast — this is the level of profit you expect to make, given your projected sales, the costs of
providing goods and services, and your overhead costs.
• Sales forecast — this is the amount of money you expect from sales of your product and/or service.
 FINANCIAL FORECASTS AND OTHER
INFORMATION
• Things to consider:
• How much capital do you need, if you are seeking external funding?
• What security can you offer to lenders?
• How do you plan to repay any borrowings?
• What are your sources of revenue and income?

• Your forecasts should cover a range of scenarios, and you should include the contingency plans
you've developed to offset any risks.
• You can also review benchmarks and averages for your type of business and discuss your
business' position.
• Financial Performance Data
Find out how your business measures up to others in your industry with this benchmarking tool.